Money and Banking

1. Money and Banking What is Money? Federal Reserve System How Banks Operate

2. Functions of Money • Serve as a medium of exchange • Return to bartering • Serves as a store of value • Hold wealth in form of money until we use it • Serves as a measure of value • Assigned to goods/services

3. TYPES OF MONEY COINS: Metallic forms of money CURRENCY: all coins and paper money are referred to as “currency.”

4. OTHER TYPES OF MONEY FIAT MONEY: Money that has value, only because citizens think that is has value. REPRESENTATIVE MONEY: Money that has value because it is backed by gold or silver. COMMODITY MONEY: Money that can be used for other purposes other than serving as currency. Gold, Silver, Wheat, etc.

5. Safeguarding the Dollar

6. Safeguarding the Dollar Cont.. • 1. Microprinting under the border to the left of Andrew Jackson's portrait says "THE UNITED STATES OF AMERICA 20 USA 20 USA" • 2. Microprinting around the first three letters of each line to the left of the Treasury Department seal repeats "20 USA" • 3. A watermark embedded into the paper the bill is printed on depicts a portrait of Andrew Jackson that is identical to the one printed on the face of the bill. • 4. The 20 on the bottom left of the front of the bill is printed using color-shifting metallic flecks. Changing the angle at which the bill is held will change the apparent color of the printing from gold to green. Additionally, the eagle and shield image is printed with an embossed sparkly ink. • 5. A mylar security thread runs vertically 17mm from the edge of the paper. This strip will glow green when exposed to UV light and has the microprinting of "USA TWENTY" along with a US Flag. Instead of stars, the miniature flag has the number 20 printed. • 6. The bill is printed using an engraving process that is able to reproduce extremely fine lines (first image). When the bill is printed using a commercial inkjet (second image) or laser printer (third image) the fine lines are obscured and colored ink spray is clearly visible under high magnification. The images were taken at 100x magnification. • 7. The back of the bill is printed with two types of optically indistinguishable ink. Under infrared light (second image), a vertical strip of printing on the left side of the note disappears. The inks used to create the bills also have varying magnetic properties. These two features are extremely difficult to reproduce and allow advanced commercial scanners to identify counterfeits. • 8. The yellow 20's printed on the back are placed to form a constellation that assists anti-counterfeiting technology in copiers and computer imaging software in identifying a scanned image as currency. This constellation, called EURion, is also featured in the bank notes of several other countries.

7. Financial Institutions • Commercial banks • Offers full banking services to individuals and businesses • Savings and loan associations (S&L) • Loan money to people buying homes • Credit Unions • Non-profit basis; business, labor unions, and government institutions; offer better rates on savings and loans

8. Safeguarding Our Financial System Regulation Insurance • Due to bank disaster in 1920s • Great Depression of 1930s led to FDIC • Give consumers feeling of safety when depositing money. • More deposits lead to funds need to make loans to fuel economy

9. The “Great Depression” 1929 - 1938 • October 29th, 1929: The Stock Market “Crashes” people’s life savings and investments were lost. • The “Great Depression” soon followed, it was America’s worst economic crisis in history. • Stock values plummeted, millions were unemployed, and the value of the U.S. dollar dropped. • People speculated in land and buying and selling stocks on the “Stock Market”

10. F.D.I.C. “What is it?” • The Federal Deposit Insurance Corporation: Is a government entity which insures all Americans money that is deposited in a bank up to $250,000 per account.

11. THE FEDERAL RESERVE • The “FED” operates as a bank for all other banks. • It regulates and controls all banks in the United States. • It controls all “Monetary Policy” in the United States and regulates the money supply. • There are 12 Federal Reserve Districts within the United States. N.C. in dist #5. • Also known as the “Central Bank” is acts as a bank for the U.S. government.

12. The Federal Reserve Cont….. • The Federal Reserve controls the entire money supply of the United States through two major types of policy. • Loose or “Easy Money” Policy • Loosen the “Discount Rate” or the rate at which the “Fed” lets banks borrow money. • Increase the “Required Reserve Ratio” RRR which means that banks have to keep more cash on hand in their vaults. • Open Market Operations: The Fed can buy or sell U.S. Treasury Bonds as needed.

13. Tight Money Policy: means that the Federal Reserve “The Fed” makes borrowing money hard for people to do. • Increase the “Discount Rate” which means it becomes more expensive for banks to borrow money. • Increase the “RRR” which means that banks would be required to keep more “cash” on hand. • Buy back all government issued bonds, therefore making them harder to buy.

14. LOOSE MONEY POLCY VS. TIGHT MONEY POLICY • Increase the “RRR”. • Increase the “Discount Rate” • Print less money. • Buy back government “Bonds” 1. Decrease the “RRR” 2. Decrease the “Discount Rate” 3. Print more money. 4. Issue government “Bonds”

15. Banking Services • Accept deposits • Checking accounts • Saving accounts • Certificates of deposit (CDs) • Certain period of time • Higher interest rates • Make loans • Amount of money in circulation continues to accumulate

16. Changes in Banking Early Banking Recent Developments • National Banking Act (1863) • Federally charted private banks issued national currecny • Federal Reserve (1913) • Great Depression (1930s) • Savings and Loan Crisis (late 1970s) • S&L made higher-risk loans, failed in 1980s & 1990s, FDIC took over regulation of S&L • Gramm-Leach-Bliley Act (1999) • Bank holding companies have greater freedoms